Dissectiong the Budget; NYPD as Terror Fighters; Life in the White House; Truce in Pakistan

Aired February 28, 2009 - 19:00 ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

WOLF BLITZER, CNN ANCHOR: Budget ambition. We're dissecting the president's new $3.6 trillion tax and spending plan. It underlines his major changes in his priorities.

And his supporters are raving that it reflects America's values. His critics complain it's a blueprint for class warfare. We're going to be hearing from both sides.

Plus, one of the America's best weapons in the war on terror: The New York City Police Department. Why the NYPD is being hailed as the top counter-terror force in the country.

And, new details about the Obamas' life in the White House. We have the exclusive pictures.

We want to welcome our viewers in the United States and around the world. I'm Wolf Blitzer. You're in THE SITUATION ROOM.

(BEGIN VIDEO CLIP)

PRES. BARACK OBAMA, UNITED STATES: In the end, a budget is more than simply numbers on a page. It is a measure of how well we are living up to our obligations to ourselves and one another. It is a test for our commitment to making America what it was always meant to be -- a place where all things are possible for all people. That is a commitment we are making in this, my first budget, and it is a commitment I will work every day to uphold in the months and years ahead.

(END VIDEO CLIP)

BLITZER: President Obama unveiling the largest ever budget proposal, massive in its scope and ambition. It contains hundreds of billions of dollars for some of his signature campaign issues -- healthcare, energy independence, and education -- while raising the deficit to an unprecedented $1.75 trillion. It also contains tax cuts for most Americans, while letting tax cuts for the wealthiest expire.

I asked the president's budget director, Peter Orszag, why the Obama administration wants to raise taxes during an economic recession.

(BEGIN VIDEOTAPE)

PETER ORSZAG, WHITE HOUSE BUDGET DIRECTOR: That's not what we're doing. And I think this has been repeated so often that it -- it really does need to be corrected. During the recession, we have the Recovery Act which cuts taxes. That's appropriate as we're trying to jump-start the economy.

As we emerge from the recession and in 2011 and thereafter, there are some tax changes that we are asking for in order to help fund key investments and also get our country back on a sound fiscal path. This is exactly what the president campaigned on.

But again, I want to emphasize, given how much confusion there's been, there are no tax increases in 2009 or 2010.

BLITZER: No tax increases for even those making more than $250,000 a year?

ORSZAG: Correct. So this charge that we're raising taxes during a recession is just factually wrong.

BLITZER: What about the hedge fund guys? Because they're supposed to be taxed according to their income as opposed to just capital gains? When does that go into effect -- the increase in taxes for them?

ORSZAG: I'll have to check. I believe that's either in 2010 or 2011.

BLITZER: So, they would get a tax increase?

ORSZAG: I'm not sure. I'll have to, again, check.

But let's -- but even take that -- take that example. Whenever -- if a movie actor earns a performance-based bonus or if, you know, a worker at CNN got a bonus for doing a good job, their taxed as ordinary income. A hedge fund manager receiving a performance-based package -- performance package gets a preferential tax treatment, which doesn't seem to make a lot of sense.

BLITZER: The seniors who make more than, what, $150,000 a year, their prescription drug rates are going to go up. When would that take effect, according to your blueprint?

ORSZAG: That's again delayed in 2011 or 2012.

BLITZER: So, not this year or next year but eventually.

ORSZAG: Right.

BLITZER: Judd Gregg, who you wanted at one point to be your commerce secretary -- the president at least wanted the Republican from New Hampshire -- he's obviously not very happy with what you put forward.

Let me read to you from a statement he released just a little while ago. "Unfortunately, this budget plan is once again a missed opportunity for American taxpayers -- it raises taxes on all Americans, implements massive new spending, and fails to make any tough choices to control the deficit and long-term fiscal crisis posed by the huge entitlement programs."

He knows a lot about this kind of stuff. He's the ranking member on the budget committee.

Do you want to respond to what he suggests?

ORSZAG: I sure do. I have a lot of respect for Judd Gregg, but let's just look at the facts. We're inheriting a deficit that amounts to $9 trillion under current policies over the next decade. We have $2 trillion of deficit reduction in this budget, including $1 trillion in spending reductions and $1 trillion in additional revenue.

So, the claim that we're raising spending just doesn't make sense relative to where we're headed under current policies. Furthermore, and I think more important than anything, we are making investments in improving the efficiency of the health system that are absolutely key to our long-term fiscal future. The single most important thing we can do to get the budget under control over the long-term is slow the growth rate of healthcare costs, and that's exactly what we're doing with the top priority of getting health reform done this year.

BLITZER: The assumptions that you've put in looking ahead, in the years to come, you assume that the country is going to go through a rough year this year, but next year, there's going to be economic growth, more than 3 percent. That's your assumption.

And in the years that follow, at least 4 percent economic growth. And some economists are saying, that's wildly optimistic -- rosy scenarios.

What do you base those assumptions on?

ORSZAG: Well, Christy Romer, who chairs the Council of Economic Advisers, leads a team of professional economist who put together that forecast. One of the things that happens when you go through a recession like we are now, is that as you emerge from that recession, the economy temporarily grows faster than normal just because your starting point is so low.

BLITZER: So, you think that the economy is going to bottom out when?

ORSZAG: Somewhere towards the end of this year or early next year. That's consistent with what Chairman Bernanke was also saying yesterday.

BLITZER: So, you agree with him in that.

And in 2010, you think that the economy is going to become robust, instead of losing jobs that we're going to start creating jobs?

ORSZAG: Well, the labor market actually lags behind. Even after the economy starts growing again, the unemployment rate can remain elevated and job losses can continue for some period of time. That's what all the evidence suggests about what happens, even as the economy starts to recover.

Unfortunately, it takes yet more time to feed into jobs and the labor market.

BLITZER: The health care package you put together is pretty staggering, I guess a lot of people would say.

Listen to what the Republican leader in the House, John Boehner, says.

(BEGIN VIDEO CLIP)

REP. JOHN BOEHNER, (R) MINORITY LEADER: A way of government bureaucrats looking at treatments that patients get and trying to determine which ones are more effective than others. In other words, getting ready to tell doctors and patients that this is the cure, regardless of what the doctor may think.

(END VIDEO CLIP)

BLITZER: Is he right when he makes that charge?

ORSZAG: Absolutely not. Your doctor will still make all the decisions and you are -- you, along with your doctor, will make decisions about your health care. The thing we have to realize is doctors in different parts of the country and even doctors within the same hospital are practicing medicine in dramatically different ways. And what happens when you show them these different practices that they are undertaking, they tend to get together and study what works and what doesn't themselves.

That's what we're looking to do -- basically to have the medical profession itself examine what works and what doesn't so that you get the most effective, high-quality care possible and that -- and the incentives for your doctors and your providers are geared towards higher quality care rather than just more care. Because it's not always better just to get more tests and stay in the hospital for longer.

BLITZER: Peter Orszag is the director of the Office of Management and Budget. Peter, good luck.

ORSZAG: Thank you very much.

(END VIDEOTAPE)

BLITZER: The president says his new budget plan is all about priorities.

(BEGIN VIDEO CLIP)

OBAMA: I worked for the American people, and I'm determined to bring the change that the people voted for last November. And that means cutting what we don't need to pay for what we do.

(END VIDEO CLIP)

BLITZER: But Republicans say Mr. Obama is simply saddling the nation with even more debt.

Just ahead -- the Minnesota Governor Tim Pawlenty's take on the president's tax and spending plan. Plus -- I'll speak with Pakistan's foreign minister and ask if his country has embraced a group of murderous thugs who pose a direct danger to the United States.

And Poland's top diplomat on the anxiety over a U.S. missile defense shield in his country and very angry rumblings from Russia.

Stay with us here on THE SITUATION ROOM.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: With this budget, we are making a historic commitment to comprehensive health care reform. It's a step that will not only make families healthier and companies more competitive, but over the long- term, it will also help us bring down our deficit.

(END VIDEO CLIP)

BLITZER: The president praises the top priority of his budget plan, but some critics say it's simply taxing the rich to help provide health care for the poor.

So, what are those in the opposing political party think of the president's plans for health care reform?

Republican Minnesota governor, Tim Pawlenty, weighs in.

(BEGIN VIDEOTAPE)

GOV. TIM PAWLENTY, (R) MINNESOTA: Well, health care, of course, is one of the driving forces for all of our budgets -- school districts, counties, cities, state governments, family and businesses, Wolf. But the direction that he's headed, if it was like he proposed during the campaign, is a very government-centric approach, when I think the better approach would be to give people good information about price and quality, and give them financial incentives to use the system wisely. And we're doing that in Minnesota in many ways, and it's working. That would be a better approach than having a government takeover or government-centric approach.

BLITZER: But do you agree in principle that the current situation, where there are tens of millions of Americans without any health insurance, others who have health insurance who are worried about losing it, and worried that if they ever get sick, it's not going to be enough to help them -- are you basically in agreement with him that the current system needs dramatic overhaul?

PAWLENTY: Absolutely, we're in agreement. We differ on perhaps the solution or the prescription for change, but the diagnosis of the problem, it's going to bankrupt us all if we don't slow it down, is absolutely correct.

BLITZER: He also wants a new energy tax. And I want you to listen to how he explained that. Listen to this.

(BEGIN VIDEO CLIP)

OBAMA: Because our future depends on our ability to break free from oil that's controlled by foreign dictators, we need to make clean, renewable energy the profitable kind of energy. That's why we'll be working with Congress on legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy.

(END VIDEO CLIP)

BLITZER: Good idea?

PAWLENTY: We want to do things to clean up the environment, Wolf, but we don't want to wreck the economy. So, those things are going to have to be in balance as we address the carbon issue. There's lots of different ways to do that that do not necessarily result in an increased energy burden or increased cost on businesses.

BLITZER: How would you do it?

PAWLENTY: Well, one way to do it is to promote -- encouraging people to do things wiser and better, not prohibiting things or taxing them. For example, one of the big contributors to greenhouse gas emissions is vehicles. So, instead of taxing people for carbon emissions, let's work on getting better technology in our cars like plug-in electrics.

China is leaping ahead of us in that regard, both in terms of cost and potential timelines. We should be putting money into research and commercialization. The results of that research as a way to address climate change.

BLITZER: He says he was dealt a pretty miserable hand by the previous administration as far as the economy is concerned.

Listen to this.

(BEGIN VIDEO CLIP)

OBAMA: Having inherited a trillion-dollar deficit that will take a long time for us to close, we need to focus on what we need to move the economy forward, not on what's nice to have.

(END VIDEO CLIP)

BLITZER: The decisions that he makes are clearly priorities from his perspective. But what's the biggest complaint that you have about the budget blueprint he put forward today?

PAWLENTY: Well, I think it is illustrated by this memory, and it's one that troubles me still. Secretary of State Hillary Clinton was in China recently on rhetorical, bended knee, pleading with the Chinese to continue to buy our debt. The federal government is constructing a debt crisis that is going to be like the mortgage crisis in a not-too- distant future. This is a house of cards, Wolf, that if we don't slow it down and get control of it, it's going to be a major problem. And to have President Obama and the Congress consider taking the deficit up to $1.75 trillion, the largest amount as a percent of GDP, I think, since World War II, and then say they're going to cut it in half after doubling it, that worries me greatly. And we're on an unsustainable path.

BLITZER: The Democrats will come back and you know what they'll say. They'll say: Governor Pawlenty, where were you during the eight years of the Bush administration? When he took office, the national debt was around $5 trillion. He left office, it was approaching $11 trillion. It doubled over those eight years, and six of which he was not only in charge of the White House -- also, the Republicans were in charge of both houses of Congress.

Where were you then?

PAWLENTY: Yes, I've said this publicly, I'll say it again here on THE SITUATION ROOM.

It doesn't matter where we've sent Republicans or Democrats to the White House or Congress. This general trend has existed and it continues.

The only way we're going to get control of this is to have a requirement, like most states have, to balance the budget with the exception of emergencies like war. We cannot trust folks going to Washington, promising to reduce the debt or the deficit. We've had too much history that shows they can't, they won't. The only way to do it is to have a device like I just described to force it.

BLITZER: Governor Pawlenty, thanks for coming in.

PAWLENTY: You're welcome.

(END VIDEOTAPE)

BLITZER: The president has a new goal for the country, and it's getting both praise and hitting some nerves.

(BEGIN VIDEO CLIP)

REP. NANCY PELOSI, (D) HOUSE SPEAKER: At long last, a budget that is a statement of our national values, as a federal budget should be.

REP. VIRGINIA FOXX, (R) NORTH CAROLINA: They're living in a never- never land. They think that they're due this money for free. They've been taught to live in a welfare society.

(END VIDEO CLIP)

BLITZER: So, just how realistic is the president's budget during these uncertain times? What one economist says needs to happen within a year.

And America's reputation, it's what one foreign leader says has been restored with President Obama in the White House.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: None of this will come without cost, nor will it be easy. But this is America. We don't do what's easy. We do what is necessary to move this country forward.

(END VIDEO CLIP)

BLITZER: President Obama outlining his very ambitious agenda before a joint session of Congress on Tuesday night. But is he taking on too much? Are his plans economically responsible?

We took those questions and more to Mark Zandi, chief economist for Moody'sEconomy.com.

(BEGIN VIDEOTAPE)

MARK ZANDI, CHIEF ECONOMIST, ECONOMY.COM: What is incredibly ambitious, I mean, there's some logic to it. He has a majority in the Congress. He has a lot of public support. And we need to be thinking about the long run, so it makes sense from that perspective.

But I think it would be nice to get a win here. We need to get something done -- something concrete. Hopefully, out of this ambitious agenda, we get something concrete done over the next year.

BLITZER: Well, you see -- you see him, also, at the same time, he says by the end of his first term, he's going to cut the annual budget deficit in half.

Given the very ambitious spending he wants to do, is that realistic?

ZANDI: Well, you know, that's going to be tough. I mean, I think it's doable with a bit of luck and some really deft policy making. But I think it is going to be particularly difficult, to get it down. You know, this year, it's going to be almost a $2 trillion budget deficit. And to get it down to $500 billion by 2013 is going to be incredibly difficult.

But it's -- certainly a laudable goal and we need to head in that direction. And it's important to point out that the size of the budget deficit in 2013 is important, but even more important are the trend lines. If it's $700 billion or $750 billion and falling, that's good enough.

BLITZER: One way he says he'll be able to lower this annual deficit is to let the tax decreases that were put into place during the Bush administration for those individuals and families making more than $250,000 a year lapse. In other words, going from the current, what, 35 percent or 36 percent top rate up to 39 percent, which was the rate during the Bill Clinton administration.

At a time of economic distress -- recession, if you will -- is that smart?

ZANDI: Well, if, in fact, the economy is still struggling come this time next year and into the summer of 2010, then, no. It wouldn't be the right thing to do, particularly because we're investing so much to get the economy back on track right now with the stimulus, with foreclosure mitigation, with financial instability. The costs are extraordinarily high.

So, why would you jeopardize the economic recovery with a tax increase come early 2011 after you've spent all this money?

I think more likely what will happen is, we'll get into next year, the economy still will be soft and he'll decide to raise the tax rates on people making over $250K, but phase it in over a period of time so that it's easier for them to digest.

BLITZER: We haven't reached rock bottom yet in this economic distress, have we?

ZANDI: No. Not by a long shot. You know, we've lost 3.6 million jobs since we started losing jobs a little over a year ago. Judging by recent data, we're going to lose 500,000 to 750,000 jobs in February. All indications are that, you know, by the time this is all said and done, we're going to lose somewhere between 6 million and 7 million jobs. The unemployment rate will be close to 10 percent. So, we've got a ways to go.

BLITZER: So, give us a time frame. When do you think we'll reach rock bottom and when will start to see some improvement -- some light at the end of the tunnel?

ZANDI: Well, you know, I think by this time next year, with the stimulus kicking in, with the Financial Stability Plan starting to have some benefit to the financial system broadly, with foreclosure mitigation starting to kick in and forestalling some of these foreclosures and hopefully putting a bit of a floor under housing values, I am cautiously optimistic that by this time next year, we'll see some stability.

The economy won't come roaring back after that. But by, hopefully, 2011-12, we'll kick into gear.

BLITZER: And do you believe the financial sector, the banks have basically been saved, that we no longer have to worry about the banking industry?

ZANDI: No. We have to worry quite a bit about them. They need more money. They have a big hole in their capital base. That's the cushion they need to remain solvent and continue to extend credit. And it's going to require more taxpayer money.

And so, we need to see more help before it's all said and done and before they're back on firm ground.

(END VIDEOTAPE)

BLITZER: Mark Zandi, giving us a fact-check here in THE SITUATION ROOM.

Meanwhile, President Obama declared this week that America has begun a new era of international engagement.

(BEGIN VIDEO CLIP)

OBAMA: To meet the challenges of the 21st century -- from terrorism to nuclear proliferation; from pandemic disease to cyber-threats to crushing poverty -- we will strengthen old alliances, forge new ones, and use all elements of our national power.

(END VIDEO CLIP)

BLITZER: But plans for a missile defense system in Europe are putting U.S. alliances and relations with Russia to the test. Are the battle days of the Cold War coming back?

The Polish foreign minister talks openly about the risks his country has swallowed.

And, Pakistan's top diplomat on the Obama administration, weapons of choice against the Taliban and al Qaeda inside his country. Let's be blunt, the Pakistani foreign minister hates it.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: And with our friends and allies, we will forge a new and comprehensive strategy for Afghanistan and Pakistan to defeat al Qaeda and combat extremism, because I will not allow terrorists to plot against the American people from safe havens halfway around the world. We will not allow it.

(APPLAUSE)

(END VIDEO CLIP)

BLITZER: President Obama in his first address before a joint session of Congress, drawing a line in the sand when it comes to terrorists. This, as he vows to turn up the pressure on the Taliban and al Qaeda in the region.

BLITZER: We interviewed the special U.S. representative for Pakistan and Afghanistan, Richard Holbrooke, last week, and he was very concerned about this agreement that you've worked out with the Taliban in this border area called Swat.

Listen to what Ambassador Holbrooke told me.

(BEGIN VIDEO CLIP) RICHARD HOLBROOKE, U.S. SPECIAL REPRESENTATIVE: The people who are running Swat now are murderous thugs and militants, and they pose a danger not only to Pakistan, but to the United States and India.

(END VIDEO CLIP)

BLITZER: Why would Pakistan reach an agreement with a group that he calls "murderous thugs"?

QURESHI: First of all, let me qualify. The agreement was not with the Taliban, nor with al Qaeda. The understanding that has been reached between the Frontier government and Sufi Mohammad and his group is a group of people that want quick dispensation of justice. It's a local solution to a local problem.

BLITZER: So you disagree that they are -- you don't believe they're murderous thugs?

QURESHI: They're not. There is an element -- there is an element in Swat, in small pockets of Swat, there are criminals, there are miscreants, but we have not signed, we are not going to go into agreement with miscreants -- no.

BLITZER: You hate the fact that the U.S. and the Bush administration, and now continuing in the Obama administration, is using these unmanned drones to target suspected Taliban or al Qaeda sites inside Pakistan. You've protested this to the United States, I assume?

QURESHI: It's one of the issues of concern that I tabled in our discussions, because I feel that it's counterproductive. It has alienated people. And to win this fight. We need to win the hearts and minds of people. And by doing this, you are alienating people because of the collateral damage they are causing.

We've discussed it. It's what I've suggested is -

BLITZER: Did you get assurance from them that they're going to -

QURESHI: What I've suggested is, let's weigh the advantages and the disadvantages. And if the disadvantages outweighed the advantages, then we are reviewing the whole strategy and this should be on the table as well.

BLITZER: You want the U.S. to give you these drones so that you could launch these strikes directly, is that right?

QURESHI: That would resolve the sovereignty issue. Yes.

BLITZER: So is it strictly a matter of sovereignty of Pakistan? Because the U.S. says Pakistan is simply not doing the job, and as a result, the U.S. has to go after these targets.

QUERSHI: No, Pakistan is doing the job and they do recognize Pakistan's contribution. But you have to understand that the terrain that we are operating in is very hostile. BLITZER: How concerned should the U.S. and others be about the security of Pakistan's nuclear arsenal falling into the hands of terrorists?

QURESHI: There's no question of it falling into the hands of terrorists.

BLITZER: Because Holbrooke told me last week this is a legitimate concern.

QURESHI: Well, obviously, they can have this concern, but they can come and we can give them a briefing on our command and control structure. I think it's very professional. It follows international standards and there is no cause for concern.

BLITZER: Is there any difference in U.S. policy towards Pakistan that you've seen from the Bush administration now to the Obama administration?

QURESHI: Yes. I think the present administration is willing to listen. They are very frank. They're saying, they do not have a magic formula. Let's sit together, let Pakistan, let the U.S., let's all sit together and find a solution, a more effective way of dealing with this.

BLITZER: So you're encouraged, even though the U.S. under the Obama administration is continuing to launch these strikes against targets inside Pakistan?

QURESHI: They are reviewing the whole policy. They are recognizing that the old policy was not very effective. Seven years in Afghanistan, they could not achieve what they thought they will achieve. That is why they have changed their approach to a holistic approach. They're talking of a reasoned approach, which is much closer to our thinking.

BLITZER: Why did you release from house arrest AQ Khan, your nuclear scientist, who was widely reported to have shared Pakistan's nuclear secrets with North Korea, with Iran, and with others?

QURESHI: Again, that's a misunderstanding. Mr. Khan has not been released. Mr. Khan was under illegal detention, put in illegal detention by the last regime. The new court order is very clear. We've shared the court order with our friends in America and they are pretty satisfied. He cannot just get up and leave the country. He cannot have an open discussion with the press. There are certain restrictions imposed on him. And he is being monitored. And there is no reason for concern.

BLITZER: And is the U.S. accepting that rationale?

QURESHI: I think after seeing the court order, after hearing our explanation, yes, they are pretty satisfied.

BLITZER: Foreign Minister, thank you very much for coming in.

QURESHI: Thank you.

BLITZER: Good luck.

QURESHI: Thank you.

BLITZER: Meanwhile, there are several other huge national security challenges facing President Obama and his administration. Plans for one major military project designed to keep Americans safe continue to cause controversy amid new fears of a resurgent Russia and a new cold war.

And joining us now is the foreign minister of Poland, Radek Sikorski. Minister, thanks very much for coming in. Welcome to Washington.

RADEK SIKORSKI, FOREIGN MINISTER, POLAND: Hi.

BLITZER: Are you convinced that the Obama administration is going to go forward and build this missile defense base or shield in Poland as the Bush administration wanted?

SIKORSKI: Well, I think it's natural for the new administration to take stock and to take a look, maybe do some more testing. It's an American project, it's NATO approved. Having signed the deal, we would rather that let it go ahead, but it really is an American decision.

BLITZER: And you want this missile defense shield in Poland, why?

SIKORSKI: Well, no, it was an American -

BLITZER: I know but you support it?

SIKORSKI: It brings some risks for us that we are ready to bear for the sake of the greater security of the entire alliance.

BLITZER: Because the Russians hate this idea.

SIKORSKI: That's right. We've paid a certain political price, internally and in relations with our neighbor.

BLITZER: Do you think this would bring Poland greater security, knowing how angry Russia is and the threat that they might have to base some other of their missiles on your border?

SIKORSKI: Well, we are prepared to give Russia some inspection rights, some monitoring rights. We don't want it to start some kind of regional arms race. But it really is up to the United States and then for NATO to deal with threats that are being made against a NATO member.

BLITZER: Would the U.S. and NATO be open to letting Russia come in and inspect those missile defense bases?

SIKORSKI: Yes, I think it did. They would, and we would, of course, risk some reciprocity, because we would also like to have confidence about some of the stuff that the Russians are doing across the border. And that way we could get everybody confident that the base only serves the intended purpose of - we've published on the internet the quite detailed agreement. So I think that gives everybody transparency.

BLITZER: Now, irrespective of whether or not this deal goes through, this missile defense shield in Poland, with radar facilities in the Czech Republic right next door, would you still want these patriot air defense missile batteries to be deployed in Poland, provided by the United States to Poland?

SIKORSKI: Well, that was the agreement that we signed simultaneously with the missile defense disagreement. And yes, we would like, and we have indication that we'll go ahead, irrespective, of MD. And we think that's right.

BLITZER: Has the Secretary of State Hillary Clinton, given you that assurance?

SIKORSKI: That's what I understand. We've been a member of NATO for 10 years. We would like to have U.S. presence in Poland. We are together in Afghanistan. Enhanced military cooperation is only natural.

BLITZER: In the aftermath of what happened last year between Russia and the Republic of Georgia, how worried are you about a resurgent Russia right now?

SIKORSKI: Well, I think the economic crisis has hit Russia in two ways. Financial instability, but then also what's the silver lining for us, namely lower energy prices is a double whammy for Russia. So we don't know how Russia is going to respond to this. We hope that Russia will recognize that she's a part of the global economy and that we deal with this together. So I think the kind of giddiness that we had last summer is over.

BLITZER: Because the price of oil has gone down, as a result, Russia's economic crisis has been intensified. And they might not be as politically, geographically ambitious, is that what you're suggesting?

SIKORSKI: Well, Russia's an important trade partner and we want Russia to get its economy right. But I think caution is the order of the day, yes.

BLITZER: One final question. Do you see any difference right now so far, it's very early, between the new administration, the Obama administration's attitude toward Poland and Europe, the NATO alliance, as compared to the Bush administration?

SIKORSKI: Poland has been a good ally of the United States, irrespective of who's been in charge. Remember it was - we got into NATO under the Clinton administration, and I think the Clinton team remember that as a success. So there is good chemistry to start with. But I think what's really important is that with President Obama, America's moral leadership, the ability to lead the west has been restored. And that's good for the entire alliance and for Poland, because together we can do more things, more effectively.

BLITZER: And so many of those Clinton administration officials are now back in the Obama administration.

SIKORSKI: Indeed.

BLITZER: People you probably know. Foreign minister, thanks very much. Good luck.

SIKORSKI: Thanks. Good-bye.

BLITZER: We're getting a glimpse of family life inside the White House right now from a favored breakfast meal to the one thing the president and First Lady do every day together. Michelle Obama's revealing interview. That's still ahead.

Plus, one American city is doing something that others are not. Why it's counter terrorism force could be keeping all of us safer.

Stick around, you're in the SITUATION ROOM.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

DENNIS BLAIR, NATIONAL INTELLIGENCE DIRECTOR: We have seen progress in Muslim opinion turning against terrorist groups. Over the last 18 months, Al Qaeda has faced public criticism from prominent religious leaders and even from some fellow extremists.

In 2008, these terrorists did not achieve their goal of conducting another major attack on the United States and no major country is at immediate risk of collapse from extremist or terrorist groups.

(END VIDEO CLIP)

BLITZER: That was the new director of National Intelligence, Dennis Blair, briefing lawmakers on the war against terror, the global fight to keep Americans safe. But it starts at home. And one U.S. city is a powerful example of that.

And joining us now is Christopher Dickey. He's the author of an important new book called "Securing the City, Inside America's Best Counter Terror Force, the NYPD." Christopher, thanks very much for coming in.

BLITZER: Why is the NYPD the best counter terror force in your opinion?

DICKEY: Because it focuses on human intelligence and using human intelligence to preempt and prevent terrorist acts, rather than just following terrorists and prosecuting them after the fact. Since 2002, that's been the whole focus of the NYPD, where the question of terrorism is concerned. And under Ray Kelly's leadership as commissioner, they've been able to turn the whole organization around in that direction. So it really is regarded as the gold standard for preventing terrorism now.

BLITZER: And because they have good intelligence and they brought in a former CIA high-ranking official, David Cohen, to come in and help them learn how to preempt or deal with potential terrorist strikes.

DICKEY: Well, that's right. They brought in David Cohen, who had been head of all of the CIA's clandestine operations in the mid 1990s, and what he did was to take the existing intelligence to the division of about 600 detectives in the NYPD and turn it into of a kind of mini CIA, but a lot of people think it's more effective than the CIA when it comes to gathering intelligence on the ground, not only in New York City, but even abroad.

BLITZER: So what I hear you say and what you write in your book is, what they've done in New York can really be a case study, not only for other major cities around the world, but even for governments out there who are worried about potential terror threats.

DICKEY: Sure. I think in the federal government, for instance, there's a lot of resistance to the idea of just doing preventive action. I mean, after all, people haven't necessarily committed a crime. So there's a question of how do you prevent them from moving toward a terrorist act when they haven't done an overt act already?

The NYPD has studied these groups, penetrated these groups, with undercover officers through liaison with the communities and as a result it's able to look at a bunch of guys who may be headed toward radicalization and intervene to stop them in a number of different ways. Maybe even arresting one or two of them on petty offenses just to put a little bit of fear into them.

BLITZER: One of the fascinating details in your book, is the fact that there are so many police officers in New York who speak all these languages out there and can easily infiltrate all sorts of potential groups.

DICKEY: Well, that's right. Right at the beginning in 2002 when Kelly came back after having been commissioner in '93. He said, you know, 40 percent of the population of New York City was not born in the United States of America. And the police have always been a great entry-level job for immigrants. So let's test people. Let's see if we've got Arabic speakers here. Not only did they have Arabic speakers, they had 700 people who were already sworn officers in the NYPD who spoke Arabic and lots of dialects, Darry, Farsi, Pashtu, Bengali, all these languages relevant to the fight against terrorism and they were already on the force. So they put them to work as counter terrorism operatives.

BLITZER: So here's the question, why has there been no major successful terror strike on the U.S. homeland since 9/11?

DICKEY: Well, I think the planners of the big hits of the 9/11s or even the cold bombing, the embassy bombings in Africa, they were all captured in the first 18 months after 9/11. They were captured in Afghanistan. They were captured in Pakistan. The CIA and the FBI, we have to credit them really with a superb job of doing that.

Since then, the main threat has not come from Al Qaeda central. It's come from homegrown terrorists or terrorists who may have a homegrown component, like the ones in London, but who also have contact with training camps in Pakistan or Afghanistan. And that's where the NYPD has focused its attention and that's where it has really excelled in the fight against terrorism.

BLITZER: Here's what you write in "Securing the City." "Would-be terrorists have to be deterred. No law and no threat of retribution will stop a man or a woman planning a suicide attack. Only the threat of failure, capture, and humiliation is likely to be effective." Explain that.

DICKEY: Well, there are several things going on. In that part of the book, I'm talking about the show business aspect, the psychological operations aspect of what the NYPD does. You're in New York, you've spent a lot of time there. You know that you can be walking down the streets in New York and all of a sudden have 76 cop cars converge all around you for no apparent reason.

Well, the reason is, to be sending a constant message to terrorists. We're out here on the streets, we're on the move, we're looking for you. And those cop cars will converge in places like the Brooklyn Bridge or Empire State Building or the Lincoln Center and that's a deterrent element.

But the other thing that goes on is when the intelligence division goes after a group of guys that they think is suspect. They may pick one up for sitting on two seats in the subway. Then they take him back to the station and they say, look, we know a fair amount about you guys. How do you think your friends are going to react if they find out you're down here talking to us? And you begin a process of intimidation, but also of recruitment in some cases.

And the message that they're sending, at several different levels to terrorists is, don't even think about hitting in New York. If you're three people conspiring, one of you may be a police informer. And if you're casing the Brooklyn Bridge, the weather's going to be too hot for you. There's too many comes around.

BLITZER: Christopher Dickey has written a really terrific book, "Securing the City, Inside America's Best Counter terror force, the NYPD." Christopher, thanks for writing the book.

DICKEY: Thank you very much, Wolf.

BLITZER: The First Lady of the United States is speaking out about waffling inside the White House.

(BEGIN VIDEO CLIP)

MICHELLE OBAMA, U.S. FIRST LADY: There hasn't been anything that I don't like. There's some mean waffles and grits that are made in the morning that have become a regular staple for some of us. I don't eat waffles every day.

(END VIDEO CLIP)

BLITZER: Michelle Obama is giving the nation a private glimpse into her family's new life.

And from the high court to courtside, our hot shot for the week, coming up.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

PRES. BARACK OBAMA, UNITED STATES: The First Lady of the United States is around here somewhere.

(END VIDEO CLIP)

BLITZER: A beautiful salute to the First lady by President Obama during his address before joint session of Congress this past week. Their relationship just one focus of the fascinating new interview with Michelle Obama. Joining us now the executive editor of our sister publication "People" magazine, Betsy Glick. She is just coming with a new cover story on the First Lady, Michelle Obama. You have an interview with her, Betsy, "Our life in the White House." Talk a little bit about the cover, the photo that you selected for the cover of "People" magazine.

BETSY GLICK, EXECUTIVE EDITOR, "PEOPLE": Well, as you can see, it's a truly beautiful sort of summery even photo. She appeared in her office in the east wing, and this is how she was dressed and, you know, she has a slightly new hairdo. She selected the look. And we think it's beautiful.

BLITZER: Sometimes her hair is up. Sometimes it's down. Did she explain to you when she wants to have it in different ways?

GLICK: No. We didn't talk about her hair at all.

BLITZER: But it is a beautiful look, as you point out.

GLICK: Right.

BLITZER: There's another picture I want to put up there, her about to eat. This is a tasting, if you will, at the White House. Is that right?

GLICK: Right. This was as she was getting ready for the governors dinner on Sunday night. She was doing some tasting in the kitchen. She also brought in some culinary students to sort of see the White House kitchen and do the tasting with her. And she's putting her own mark on everything she does there.

BLITZER: Because she has her taste as far as food is concerned. Talk a little bit about that. GLICK: Well, she talks about how the White House chefs make a mean waffle and grits and they like to have that occasionally in the morning. And she specifically asked for this dinner on Sunday night that they prepare scallops because that's one of the president's favorite foods and huckleberry cobbler, that sort of thing.

BLITZER: The chef is really amazing at the White House. And I know you have her in the picture wearing the hat. I was privileged this week to have lunch over there myself. And so I tasted some of that delicious food and I can testify it's really, really good.

All right. We have another picture at the dinner for the governors. It was Sunday night. And she looks fabulous in this gown. She's walking with her husband, who looks dashing in his tuxedo.

GLICK: Right. Yes. I mean, she is clearly trying to bring in some fresh style to the White House. She said to us she's not a fashionista, but she enjoys clothing and she knows that people are looking at what she's wearing and people are seeing her as a role model in all sorts of ways.

BLITZER: But first and foremost in their lives are the two daughters, Sasha and Malia. I know the president is thrilled that he works only a few feet away from where he lives and can spend a lot more quality time with the girls.

GLICK: Right. Mrs. Obama talked to "People" magazine about how their family life is better than it's ever been. She and the president get up at 5:30 in the morning. They work out together almost every single morning. She says he cannot miss a workout. They have breakfast together. Most days if he's not traveling, he comes upstairs for dinner and to tuck the girls in. It sounds really nice.

BLITZER: We do have this impression of a perfect marriage that they have.

GLICK: Right.

BLITZER: Is it as perfect as all of us think it is?

GLICK: We asked her that. She said their marriage is very, very strong, but she wants everybody to know it's not perfect. They work at their marriage just like everybody else.

BLITZER: And you also got the latest on the search for a dog for those two little girls. What is the latest?

GLICK: Right. Well, the latest is that they do have their eye - one of the breeds that they really, really like is this Portuguese water hound. They want a dog that's not too big and not too small. And, also, the dog is coming in April.

BLITZER: The dog is coming what?

GLICK: In April.

BLITZER: In April.

GLICK: Yes.

BLITZER: And they're already thinking of names, you write in the magazine as well.

GLICK: That's right. She said that the girls have some names that they like and the names are Frank and Moose. And Mrs. Obama just said, you know, work with me. These are - she thinks these names are hilarious and she hopes that they can do better than Frank or Moose.

BLITZER: It's the cover story in "People" magazine, Michelle Obama, "Our life in the White House." Betsy, thanks for coming in.

GLICK: Sure.

BLTIZER: From Hollywood to Bollywood, one of the child actors from "Slumdog Millionaire" gets a big welcome back home. Just one of our hot shots. The best picture of the week right here in the SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Here's a look at some of this week's hot shots from our friends over at the Associated Press. In India, one of the child actors from "Slumdog Millionaire" returned from Hollywood to a welcome from fans.

Penn Ohio State University, the football coach Jim Russell cheered on the basketball team as they defeated Penn State.

In Paris, the actor Dustin Hoffman was awarded a medal from the French Order of Arts.

And in Washington, D.C., Justice Ruth Bader Ginsburg was warmly received before President Obama's address before Congress. Some of the week's hot shots, pictures often worth a thousand words.

That's it for us. I'm Wolf Blitzer in "The Situation Room." Join us week days from 4:00 to 7:00 p.m. Eastern and every Saturday at 6:00 p.m. Eastern right here on CNN and at this time every weekend on CNN International. The news continues next right here on CNN.